The Motley Fool

The BT share price: I think this is one of the best stocks in the FTSE 100

Image source: Getty Images

I’ll be the first to admit I’ve been somewhat critical about the BT (LSE: BT.A) share price in the past.

I believed the FTSE 100 company was struggling for direction in the highly competitive UK telecoms market. Management’s decision to enter the pay-tv market and spend billions on football broadcasting rights also seemed to be unwise. Certainly considering its high level of debt and terrible customer service reputation. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, while I still believe the business faces significant challenges, I think its outlook is steadily improving. With this being the case, I think the BT share price has become one of the best opportunities in the FTSE 100. 

FTSE 100 investment

There are a handful of reasons why I think the company’s outlook is improving. First off, management has changed direction.

Rather than focusing on growth, the business now seems to be doubling down on improving its existing offer. BT is spending billions over the next few years boosting its broadband network. The organisation has also invested in its store network and customer service. These are all part of management’s goal to improve the company’s relationship with customers.

At the same time, the group has been removing unnecessary layers of management. This should help streamline the enterprise and help it adapt better and move faster to changing conditions in the telecoms market. 

Debt is also starting to come down. According to the company’s latest trading update, BT’s net debt as of 31 December was £17.3bn, down from £18.2bn the same date the prior year. 

BT share price risks 

Unfortunately, the lower level of borrowing came at a cost. The firm didn’t pay a dividend last year. The money saved reduced net debt and some was reinvested back into the business. Therefore, it seems unlikely  the company will be able to maintain this level of debt reduction. I think that’s a big risk to the BT share price outlook. 

Also, while BT has been investing more in its infrastructure over the past two months, it isn’t alone. Competitors have been doing the same. Firms such as CityFibre and Virgin Media have also been spending big sums to boost their connectivity and attract customers. BT can’t afford to take it easy. 

Then there’s the risk of regulatory measures to consider. Regulators have threatened BT with action if the corporation doesn’t invest more in its network. This is something the company can’t control. If regulators ever decided to take action, the BT share price would undoubtedly suffer. 

Still, at current levels, shares in the telecommunications giant are changing hands at a multiple of around eight times forward earnings. That’s compared to its five-year average multiple, which sits in the mid-teens range.

On this basis, I reckon the FTSE 100 stock looks too cheap to pass up. So, while the business does face plenty of risks, I’d buy the stock today based on its valuation and turnaround potential.

One stock for a post-Covid world...

Covid-19 is ripping the investment world in two…

Some companies have seen exploding cash-flows, soaring valuations and record results…

…Others are scrimping and suffering.

Entire industries look to be going extinct.

Such world-changing events may only happen once in a lifetime.

And it seems there’s no middle ground.

Financially, you’ll want to learn how to get positioned on the winning side.

That’s why our expert analysts have put together this special report.

If the pandemic has completely changed our lives forever, then they believe that this stock, hidden inside the tech-heavy NASDAQ, could be set for monstrous gains...

Click here to claim your copy now — and we’ll tell you the name of this US stock… free of charge!

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.